<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22018
CELESTIAL SEASONINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-1097571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 Sleepytime Drive, Boulder CO 80301-3292
(Address of principal executive offices)
(303) 530-5300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
RIGHTS TO PURCHASE JUNIOR PARTICIPATING PREFERRED STOCK, SERIES A,
PAR VALUE $.01 PER SHARE
(Title of Each Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of voting stock held by nonaffiliates of
the registrant was $80,005,591 as of December 2, 1996.
Number of shares of Common Stock outstanding as of December 2, 1996: 4,050,916
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement dated January 6, 1997 - Part III.
<PAGE>
PART I
------
ITEM 1. - BUSINESS
General
Celestial Seasonings, Inc. (the "Company") is the largest manufacturer and
marketer of herb teas in the United States, with an estimated 50% share of the
herb tea category. The Company developed and popularized the herb tea category
in the United States as a flavorful and non-caffeinated alternative to other
hot beverages. Currently the Company markets approximately 60 tea varieties
under the Celestial Seasonings(R) brand. The name Celestial Seasonings has a
high level of brand awareness among tea drinkers. Celestial Seasonings
products are sold in substantially all of the major supermarkets, grocery
stores and natural foods markets in the United States.
The Company develops high-quality, flavorful, natural products as well as
attractive, colorful and thought-provoking packaging. The Company's products
include Sleepytime(R), Lemon Zinger(R), Peppermint, Chamomile, Mandarin Orange
Spice(R), Wild Cherry Blackberry, Cinnamon Apple Spice, Red Zinger(R),
Raspberry Zinger(R) and Wild Berry Zinger(R) herb teas, a line of medicinal
herb teas under the Herbal Comfort/TM/ name, a line of herbal and specialty
black iced teas under the Celestial Seasonings Brews In Your Fridge/TM/ name
and a line of hot specialty black teas.
During 1995, the Company entered the nutraceutical market through the
acquisition of the assets of Botalia Pharmaceutical, Inc. Botalia's product
lines currently include Herbal Choice(R) and Botalia Gold/TM/. In 1996 the
Company developed a melatonin product line under the Melatonin PM/TM/ name and
is continuing to develop new nutraceutical products.
The Company's business began in the early 1970s and grew to become the
nation's largest manufacturer of herb teas. In 1984, the Company was acquired
by Kraft, Inc., and in 1988, the Company was acquired in a management buyout.
In 1993, the Company completed its initial public offering of common stock.
The Tea Industry
The domestic tea industry consists of five general product categories: herb
tea, specialty black tea, black tea, instant tea and ready-to-drink tea. The
Company believes, based on data derived from Information Resources, Inc.
reports and the Company's estimates, that annual domestic retail tea sales,
excluding ready-to-drink tea, are approximately $1.5 billion.
Products
The Company's tea products contain no artificial preservatives, are made
from high-quality, natural ingredients and are generally offered in 24 and 48
bag packages. Industry sales of hot herb tea have grown only moderately in
recent years, and because of the Company's share of the category, the
Company's tea sales tend to be reflective of the entire category.
The following table sets forth the amounts and percentages of the Company's
net sales for each major product category during the last three years. Changes
in net sales by each product category are
2
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affected by timing of promotional activities, consumer trends and the
development and introduction of new products. Historical results may not be
indicative of results in future years.
<TABLE>
<CAPTION>
Company Net Sales By Produet Category
Year Ended September 30,
---------------------------------------------------------------
1996 1995 1994
------------------- ----------------- ------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Dry tea $ 69,258 94.9 % $ 64,400 91.9 % $ 62,721 96.4 %
Nutraceuticals 1,917 2.6 456 0.6 - -
Ready-to-drink bottled teas 354 0.5 2,168 3.1 - -
Other 1,469 2.0 3,080 4.4 2,320 3.6
------- ------ ------- ------ ------- ------
$ 72,998 100.0 % $ 70,104 100.0 % $ 65,041 100.0 %
======= ====== ======= ====== ======= ======
</TABLE>
Dry tea
Herb Tea. The Company's herb teas are offered in a wide variety of flavors.
The Company's top-selling herb tea products include Sleepytime(R), Lemon
Zinger(R), Peppermint, Chamomile, Mandarin Orange Spice(R), Wild Cherry
Blackberry, Cinnamon Apple Spice, Red Zinger(R), Wild Berry Zinger(R) and
Raspberry Zinger(R). During 1996, the Company introduced a line of medicinal
herb teas under the Herbal Comfort/TM/ name. The current blends of Herbal
Comfort/TM/ are: Antioxidant Assurance/TM/, Detox A.M./TM/, Diet Partner/TM/,
Echinacea Extra/TM/, GinkoSharp/TM/ and Steady Stomach/TM/.
Herb and Specialty Black Iced Teas. In 1995, the Company developed a line
of specialty black iced teas, called Brews in Your Fridge/TM/. Brews in Your
Fridge teas can be brewed in a refrigerator, using a patent pending
technology, by placing tea bags in cold water for approximately two hours. In
1996, the Company began marketing a line of herbal iced teas under the Brews
in Your Fridge name in order to create a single iced tea line for herb and
specialty black iced tea products. During 1996, the Company offered Original
Delight/TM/, Caribbean Kiwi Peach/TM/ and CranRazz Sunset/TM/, blends of Brews
in Your Fridge herb teas. The current flavors of Brews in Your Fridge
specialty black iced teas are: Old Fashioned Iced Tea/TM/, Sunny Lemon/TM/,
and Raspberry Kiwi.
Specialty Black Tea. The Company's specialty black teas are made
exclusively from natural ingredients. Black tea products include Misty
Mango/TM/, Earl Grey, English Breakfast, Firelight Orange Spice/TM/, Fast
Lane/TM/, Vanilla Maple, Emerald Gardens/TM/, Ceylon Apricot Ginger, and
Mountain Estate/TM/.
Nutraceuticals
On June 30, 1995, the Company acquired the net assets of Botalia
Pharmaceutical, Inc. ("Botalia"), a developer and marketer of herbal
supplements. Botalia's products are manufactured and packaged under an
independent co-packing arrangement. The Company currently distributes
Botalia's products under the Herbal Choice(R) and Botalia Gold/TM/ product
lines. The major channels of distribution for Botalia's products are drug
stores and mass merchandisers. See Note 11 to the Company's Consolidated
Financial Statements included in Part II for further discussion regarding the
Botalia acquisition.
During 1996, the Company began manufacturing and marketing melatonin
products under the Melatonin PM/TM/ name using an independent co-packer. The
Company is continuing to develop new nutraceutical products.
3
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Ready-to-drink Bottled Tea
The Company licensed its ready-to-drink iced teas to Royal Crown Company,
Inc. ("Royal Crown") in October 1995. The agreement provides that Royal Crown
will manufacture, market and distribute ready-to-drink iced tea products in
the United States and Canada under the Celestial Seasonings(R) name, and the
Company will provide marketing and research and development support. The term
of the agreement is ten years, subject to automatic one year renewals
thereafter, and under certain circumstances may be terminated by either party
upon one year's notice. Under the agreement, Royal Crown will make royalty
payments to the Company, and the Company is obligated to reinvest a portion of
the royalties in product development and brand building.
Prior to its license agreement with Royal Crown, from January through
December 1995, the Company manufactured and marketed ready-to-drink iced tea
bearing the Celestial Seasonings(R) name using independent co-packers who
prepared, bottled and stored the Company's products. Sales of the products
were made through a limited network of independent beverage distributors.
Prior to January 1995, the Company licensed its ready-to-drink products to
Perrier Group of America, Inc.
The Company's ready-to-drink teas are marketed in the following flavors:
Lemon Zingerade/TM/, Cranberry Zinger/TM/, Raspberry Zinger/TM/, Diet
Raspberry Zinger/TM/, Strawberry Kiwi, Peach Chamomile, Diet Peach
Chamomile and Iced Tea with Lemon Ginseng.
Other
Other includes royalty income, bulk and direct sales by the Company, and
sales of other miscellaneous products. Total royalty income in 1996 was
$359,000. In addition to the Royal Crown license agreement, royalty income was
also derived in part from a license agreement with Warner-Lambert Company
("Warner Lambert") entered into in 1994. Under the agreement, Warner-Lambert
manufactures and distributes throat drops under the Celestial Seasonings
Soothers/TM/ name. The agreement is for a five year period and Warner-Lambert
has options to renew for one year periods thereafter. The current flavors of
Soothers/TM/ are Harvest Cherry/TM/, Honey-Lemon Chamomile, Herbal Orange
Spice and Golden Herbal Blend/TM/.
Research and Development
The Company considers research and development of new products to be a
significant part of its overall philosophy and commitment to developing high-
quality products. A team of professional product developers works with a
sensory technologist to test product prototypes with consumers. The research
and development department incorporates product ideas from all areas of the
Company in order to formulate new products. In addition to developing new tea
and nutraceutical products, the research and development department routinely
reformulates and revises existing products. New blends of herbs and teas are
submitted for review and evaluation to tea-tasters and consumer focus groups.
Sales and Distribution
The Company's products are sold in all 50 states and approximately 25
countries. The Company's sales are seasonal. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Seasonality"
included in Part II, Item 7. Net sales include total export sales of
$7,579,000, $6,578,000 and $5,666,000 in 1996, 1995 and 1994, respectively.
4
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The major domestic channels of distribution for the Company's products are
supermarkets and grocery stores, natural foods markets, and food service
operations such as restaurants, universities and hotels. During 1996, no
single customer accounted for more than 10% of total company sales.
The Company's products are sold by the Company's sales staff and
approximately 80 brokers who represent the Company in connection with sales to
supermarket and grocery, natural foods, food service and non-grocery
businesses. Brokers represent the Company in presenting marketing and sales
programs, supporting retail stores, selling new items, and establishing sales
promotions with customers. The Company's policy is to grant its brokers rights
to sell the Company's products within a defined territory. Most of the
Company's brokers also represent other food and beverage manufacturers.
Marketing
The Company uses a mix of consumer and trade promotions as well as
advertising to market its products. The Company's advertising and sales
promotion expenditures have been for national and regional consumer promotion
through television advertising, couponing and other trial use programs, with
the balance spent on trade advertising and promotion, including slotting fees,
cooperative advertising and feature advertising.
Operations
Suppliers. The Company purchases its ingredients from numerous foreign and
domestic manufacturers, importers and growers, with the majority of those
purchases occurring outside of the United States. The Company maintains long-
term relationships with most of its suppliers. Purchase arrangements with
ingredient suppliers are generally made annually and in U.S. currency.
Purchases are made through purchase orders or contracts, and price, delivery
terms and product specifications vary.
The Company's botanical purchaser visits major suppliers around the world
annually to procure ingredients and to assure quality by observing production
methods and providing product specifications. The Company's ability to ensure
a continuing supply of ingredients at competitive prices depends on many
factors beyond its control, such as foreign political situations, embargoes,
changes in national and world economic conditions, currency fluctuations and
unfavorable climatic conditions. The Company takes steps intended to lessen
the risk of an interruption of botanical supplies, including identification of
alternative sources and maintenance of appropriate inventory levels. The
Company has, in the past, maintained sufficient supplies for its ongoing
operations.
Many ingredients are presently grown in countries where labor-intensive
cultivation is possible, and where the Company often must educate the growers
about product standards. The Company performs laboratory analysis on incoming
ingredient shipments for the purpose of assuring that they meet the Company's
quality standards and those of the U.S. Food and Drug Administration ("FDA").
The Company purchases the majority of its packaging materials domestically.
The James River Corporation, a packaging materials supplier, was the largest
single supplier in 1996. The ability of the Company to assure continuing
production of bagged tea depends upon the continuing access to tea bag paper.
The Company obtains most of its tea bag paper from a single foreign supplier,
which has been a reliable source of quality paper. Alternative sources for tea
bag paper have been utilized in the past and should be available for future
purchases.
5
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Production. The Company uses more than 100 ingredients in its various
blends. The Company separates and cleans herbs upon receipt from suppliers at
its facilities in Boulder, Colorado. Individual herbs are combined in the
Company's blending system, and then the blends are taste-tested to ensure
flavor consistency. Finally, the Company packages herb blends into finished
products. A continuous line of automated equipment deposits the blended herbs
in tea bags and packages the tea bags, first in cartons and then in cases. The
Company believes that it has sufficient production capacity for the forseeable
future. The Company believes that its tea bagging lines are among the most
automated in the tea industry.
Trademarks and Copyrights
The Company has trademarks for most of its best-selling brands, including
Sleepytime(R), Lemon Zinger(R), Mandarin Orange Spice(R), Red Zinger(R) and
Wild Berry Zinger(R). The Company has made various federal and international
filings with respect to its material trademarks, and intends to keep these
filings current and seek protection for new trademarks to the extent
consistent with business needs. The Company also copyrights certain of its
artwork and package designs. The Company is not aware of any material
challenge to the validity of any trademark or copyright material to its
business. However, due to the importance of product package design and artwork
to the success of its tea business, the Company intends to take vigorous
action to protect against the imitation of its products and packages and to
protect its trademarks and copyrights to the extent consistent with business
needs.
Competition
The beverage market is large and highly competitive. The tea portion of the
beverage market is, in general, also highly competitive. Competitive factors
in the tea industry include product quality and taste, brand awareness among
consumers, variety of specialty tea flavors, interesting or unique product
names, product packaging and package design, supermarket and grocery store
shelf space, alternative distribution channels, reputation, price, advertising
and promotion. The Company currently competes in the specialty tea market
segment which consists of herb tea and specialty black tea (for both hot and
iced consumption). Herb tea produced for consumption as a hot tea accounted
for a majority of the Company's 1996 sales. The Company's specialty herb tea
products, like other specialty tea products, are priced higher than most black
tea products.
The Company's principal competitors on a national basis in the specialty
tea market segment are Thomas J. Lipton Company, a division of Unilever PLC,
which has substantially greater financial resources than the Company, and R.C.
Bigelow, Inc. Additional competitors include a number of regional specialty
tea companies. Potential entrants include manufacturers of black tea that are
not yet in the specialty tea market, many of which have substantially greater
financial resources than the Company. Private label competition currently is
minimal in the specialty tea category.
A significant portion of the Company's tea sales in 1996 was through
grocery stores and supermarket chains. Such sales are affected by the
competitive factors facing the food retailing industry, which sometimes
requires food product companies, including the Company, to pay "slotting" fees
to grocers in order to obtain shelf space, primarily for new product
introductions.
In 1995, the Company introduced Brews in Your Fridge/TM/ specialty black
iced tea products on a regional basis. During 1996, the Company renamed its
herbal iced tea line to Brews in Your Fridge in order to create a single
line for both herb and specialty black iced teas. The Company is attempting
to develop a significant market for its iced tea products. However, because of
the competitive nature of this
6
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market, there is no assurance that the Company will be able to achieve this
goal. If successful, the Company's iced tea products may, in the future,
lessen the Company's historical seasonality.
Employees
As of September 30, 1996, the Company employed 225 full-time employees. Of
this number, 59 were in management and sales, 65 were in administrative or
clerical positions and 101 were production and service employees. The Company
has implemented a number of programs to maintain a high level of employee
morale and productivity. The Company does not have a collective bargaining
agreement with any of its personnel, has not experienced any material employee
work stoppages and believes its employee relations are satisfactory.
Government Regulation
The production and marketing of the Company's beverages and nutraceuticals
are subject to the rules and regulations of various federal, state and local
food and health agencies, including the FDA. In addition to laws relating to
food products, the Company is subject to various federal, state and local
environmental laws and regulations which limit the discharge, storage,
handling and disposal of a variety of substances. The Company's operations are
also governed by laws and regulations relating to workplace safety and worker
health, principally the Occupational Safety and Health Administration Act and
applicable state laws. The Company believes it presently complies in all
material respects with the foregoing laws and regulations and does not
anticipate any material capital expenditures in connection with any government
regulations.
ITEM 2. - PROPERTIES
The Company owns a manufacturing and office facility in Boulder, Colorado
built in 1990 on 42 acres of Company-owned land. The facility has
approximately 167,000 square feet, of which 50,000 square feet is office space
and 117,000 square feet is manufacturing space. Management believes the
property is in satisfactory condition and suitable for the Company's purposes.
The property is encumbered under the Company's credit facility.
ITEM 3. - LEGAL PROCEEDINGS
The information in Note 6 to the Company's Consolidated Financial
Statements included in Part II is incorporated herein.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
7
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PART II
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ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "CTEA". The following table sets forth the high and low sale
prices for the Common Stock for the periods indicated as reported by Nasdaq.
On December 2, 1996 the last reported sale price of the Common Stock was
$19.75 per share.
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1995:
First Quarter...................... $19.25 $14.25
Second Quarter..................... 19.75 14.00
Third Quarter...................... 20.25 14.75
Fourth Quarter..................... 19.63 17.25
1996:
First Quarter...................... $22.00 $16.25
Second Quarter..................... 26.00 18.75
Third Quarter...................... 24.50 19.75
Fourth Quarter..................... 22.50 18.50
</TABLE>
As of December 2, 1996, there were approximately 322 holders of record of
the Company's Common Stock.
The Company intends to retain earnings to fund the growth of its business
and therefore does not anticipate paying any cash dividends on shares of
Common Stock in the foreseeable future. Payment of dividends is restricted by
the Company's credit facility.
During 1996, the Company did not sell any equity securities that were not
registered under the Securities Act of 1933, as amended.
8
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ITEM 6. - SELECTED FINANCIAL DATA
The following data for each of the five fiscal years ended September 30,
1996 is derived from the consolidated financial statements of the Company
(other than case sales, which are derived from other Company records). The
following data should be read in conjunction with the Company's financial
statements, related notes thereto and other financial information included
elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------
(in thousands, except per share amounts)
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales $ 72,998 $ 70,104 $ 65,041 $ 59,109 $ 54,549
Cost of goods sold 28,545 27,349 24,322 22,319 21,109
--------- --------- --------- --------- ----------
Gross profit 44,453 42,755 40,719 36,790 33,440
Operating expenses:
Selling and marketing 30,071 27,323 26,306 24,104 22,738
General and administrative 3,899 4,429 3,861 3,416 3,125
Amortization of intangibles 1,493 1,823 2,046 2,959 2,893
--------- --------- --------- --------- ----------
Operating income 8,990 9,180 8,506 6,311 4,684
Interest expense 874 1,264 1,345 3,851 5,204
--------- --------- --------- --------- ----------
Income (Loss) before income taxes 8,116 7,916 7,161 2,460 (520)
Income taxes 3,093 2,049 698 68 -
--------- --------- --------- --------- ----------
Income (Loss) before extraordinary item 5,023 5,867 6,463 2,392 (520)
Extraordinary item, net of tax benefit - - - (3,058) -
--------- --------- --------- --------- ----------
Net income (loss) 5,023 5,867 6,463 (666) (520)
Preferred stock dividend requirements - - - 2,468 2,695
--------- --------- --------- --------- ----------
Net income (loss) attributable to common stock $ 5,023 $ 5,867 $ 6,463 $ (3,134) $ (3,215)
========= ========= ========= ========= ==========
Net income (loss) per common share:
Income (Loss) before extraordinary item $ 1.22 $ 1.44 $ 1.57 $ (0.03) $ (1.77)
Extraordinary item - - - (1.35) -
--------- --------- --------- --------- ----------
Net income(loss) $ 1.22 $ 1.44 $ 1.57 $ (1 .38) $ (1.77)
========= ========= ========= ========= ===========
Weighted average common shares 4,115 4,086 4,106 2,263 1,820
Balance Sheet Data:
Working capital $ 7,882 $ 6,239 $ 4,624 $ 3,710 $ (1,535)
Total assets 54,903 53,327 51,705 49,983 52,350
Long-term debt 9,057 12,768 17,432 22,566 36,932
Redeemable preferred stock - - - - 16,167
Stockholders' equity (deficit) 37,217 31,909 25,898 19,398 (12,517)
Other Data:
Case sales 4,338 4,274 3,812 3,468 3,281
Earnings before interest, taxes,
depreciation and amortization (EBITDA) $ 11,551 $ 11,888 $ 11,280 $ 10,022 $ 8,717
</TABLE>
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ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table is derived from the Company's Consolidated Income
Statements for the periods indicated and presents (i) the results of
operations as a percentage of net sales and (ii) the percentage change in the
dollar amounts of each item from the prior period.
<TABLE>
<CAPTION>
Period-to-Period
Percentage of Net Sales Increase/(Decrease)
--------------------------------------------------------------------------
1996 1995
Year Ended September 30, Compared Compared
1996 1995 1994 to 1995 to 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 4.1 % 7.8 %
Cost of goods sold 39.1 39.0 37.4 4.4 12.4
------------------------------------------
Gross profit 60.9 61.0 62.6 4.0 5.0
Selling and marketing 41.2 39.0 40.5 10.1 3.9
General and administrative 5.3 6.3 5.9 (12.0) 14.7
Amortization of intangibies 2.1 2.6 3.1 (18.1) (10.9)
------------------------------------------
Operating income 12.3 13.1 13.1 (2.1) 7.9
Interest expense 1.2 1.8 2.1 (30.9) (6.0)
------------------------------------------
Income before income taxes 11.1 11.3 11.0 2.5 10.5
Income taxes 4.2 2.9 1.1 51.0 193.6
------------------------------------------
Net income 6.9 % 8.4 % 9.9 % (14.4) (9.2)
==========================================
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Net sales. Net sales for 1996 increased 4.1% to $73.0 million from $70.1
million in 1995. The increase primarily was attributable to an increase in
case sales of 1.5% to 4,338,000 cases from 4,274,000 cases. Case sales growth
was the result of a 5.8% increase in sales of the Company's herb and specialty
black dry tea products and the contribution of nutraceutical product sales.
This increase in sales volume reflects increased shipments to the Company's
traditional channels of distribution as well as expansion into other channels.
The increase was partially offset by a decrease in case sales of ready-to-
drink bottled tea, a product now licensed to Royal Crown Company, Inc. Three
quarters in 1995 reflected sales of bottled iced tea as compared to one
quarter in 1996.
Gross profit. As a result of the Company's increase in net sales, gross
profit for 1996 increased 4.0% to $44.5 million from $42.8 million in 1995.
The Company's gross profit margin of 60.9% was essentially unchanged from the
prior year.
Selling and marketing expenses. Selling and marketing expenses for 1996
increased 10.1% to $30.1 million from $27.3 million in 1995, and increased as
a percentage of net sales to 41.2% from 39.0%. The increase in selling and
marketing expenses primarily was due to an increase in advertising expenses.
This increase was partially offset by a decrease in trade promotion expenses.
General and administrative expenses. General and administrative expenses
for 1996 decreased 12.0% to $3.9 million from $4.4 million in 1995, and
decreased as a percentage of net sales to 5.3% from 6.3%. The primary reason
for the decrease in general and administrative expenses was a one-time charge
of approximately $0.4 million incurred in 1995 related to the Company's
acquisition efforts.
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Amortization of intangibles. Amortization of intangibles, including
amortization of goodwill and other intangible assets for 1996, decreased 18.1%
to $1.5 million from $1.8 million in 1995. Amortization of intangibles was
lower for 1996, as compared to 1995, as certain intangible assets became fully
amortized or were written off. These reductions were partially offset by
amortization on new additions to artwork and plates resulting from the
Company's continued development of new products and improved packaging.
Operating income. Operating income for 1996 decreased 2.1% to $9.0 million
from $9.2 million in 1995. The reduction was primarily due to increased
selling and marketing expenses, as discussed above. Operating income as a
percentage of net sales decreased to 12.3% from 13.1% primarily due to
increased operating expenses.
Interest expense. Interest expense for 1996 decreased 30.9% from 1995
primarily as a result of reduced outstanding borrowings.
Income taxes. Income tax expense for 1996 increased 51.0% from 1995. The
increase in income tax expense primarily was due to the utilization of net
operating loss carryforwards in 1995 and realization of deferred tax assets
during 1995 for which valuation allowances had been provided in prior periods
in accordance with SFAS No. 109. These items were not available in 1996.
Net income. Net income of $5.0 million for 1996 was $0.9 million less than
$5.9 million for the comparable period in 1995, and as a percentage of net
sales was 6.9% in 1996 compared to 8.4% in 1995. This decrease was primarily
attributable to increased income tax expense in 1996.
Fiscal 1995 Compared to Fiscal 1994
Net sales. Net sales for 1995 increased 7.8% to $70.1 million from $65.0
million in 1994. The increase was primarily attributable to an increase in
case sales of 12.1% to 4,274,000 cases from 3,812,000 cases. Case sales growth
was achieved primarily as a result of the inclusion of the Company's ready-to-
drink bottled teas and introduction of Brews in Your Fridge/TM/ specialty
black iced tea, as well as growth in the Company's herbal and specialty black
hot tea products.
Gross profit. Gross profit for 1995 increased 5.0% to $42.8 million from
$40.7 million in 1994. Gross profit as a percentage of net sales decreased to
61.0% from 62.6%. The decrease in gross profit margin was primarily
attributable to lower sales of Iced Delight(R) products, the introduction of
the Company's Brews in Your Fridge specialty black iced tea, ready-to-
drink bottled teas and instant mix tea products, which have lower margins than
typical for the Company's herb tea products. The Company established
additional reserves for anticipated slow-moving or excess and obsolete
inventories of certain of these products.
Selling and marketing expenses. Selling and marketing expenses for 1995
increased 3.9% to $27.3 million from $26.3 million in 1994, but decreased as a
percentage of net sales to 39.0% from 40.5%. The increase in selling and
marketing expenses primarily was due to incremental expenses associated with
the Company's ready-to-drink bottled teas, increases in expenses related to
trade and consumer promotions, and freight and commissions associated with
increased sales volume. This amount was partially offset by a decrease in
advertising expense.
11
<PAGE>
General and administrative expenses. General and administrative expenses
for 1995 increased 14.7% to $4.4 million from $3.9 million in 1994, and
increased as a percentage of net sales to 6.3% from 5.9%. The increase was
primarily due to $0.4 million in additional expenses associated with the
Company's acquisition efforts during 1995 and legal costs associated with the
shareholder lawsuit, discussed at Note 6 to the Company's Consolidated
Financial Statements.
Amortization of intangibles. Amortization of intangibles, including
amortization of goodwill and other intangible assets for 1995, decreased 10.9%
to $1.8 million from $2.0 million in 1994. Amortization of intangibles was
lower for 1995, as compared to 1994, as certain intangible assets became fully
amortized or were written off. These reductions were partially offset by
amortization on new additions to artwork and plates resulting from the
Company's continued development of new products and improved packaging.
Operating income. Operating income for 1995 increased 7.9% to $9.2 million
from $8.5 million in 1994. Operating income as a percentage of net sales
remained relatively unchanged.
Interest expense. Interest expense for 1995 decreased 6.0% from 1994,
primarily as a result of reduced outstanding borrowings.
Income taxes. The Company's effective income tax rate in 1995 was 25.9% as
compared to 9.7% in 1994. The rate increase primarily was due to the
decreased availability of net operating loss carryforwards in 1995. In 1995,
the tax effect of net operating loss carryforwards utilized was $650,000, as
compared to $1,700,000 in 1994. At September 30, 1995, the Company had
utilized all net operating loss carryforwards.
Net income. Net income of $5.9 million for 1995 was $0.6 million less than
$6.5 million for the comparable period in 1994, and as a percentage of net
sales was 8.4% in 1995 compared to 9.9% in 1994. This decrease was
attributable to increased income tax expense in 1995.
12
<PAGE>
Seasonality
The Company's business is seasonal and its quarterly results of operations
reflect seasonal trends resulting from increased demand for the Company's hot
tea products in the cooler months of the year. The following table sets forth
selected unaudited quarterly consolidated financial and operational data for
the eight most recent quarters.
<TABLE>
<CAPTION>
1996 Quarters Ended
-------------------------------------------------------------
Dollars and cases in thousands
-------------------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Case sales 832 647 1,437 1,422
Net sales $ 14,587 $ 10,829 $ 23,950 $ 23,632
Gross profit 8,536 5,840 15,195 14,882
Operating income (loss) 906 (139) 4,929 3,294
Operating margin 6.2% (1.3)% 20.6% 13.9%
Net income (loss) $ 466 $ (136) $ 2,841 $ 1,852
Net sales as a percent of annual net sales 20.0% 14.8% 32.8% 32.4%
<CAPTION>
1995 Quarters Ended
-------------------------------------------------------------
Dollars and cases in thousands
-------------------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Case sales 831 764 1,456 1,223
Net sales $ 13,482 $ 11,265 $ 24,232 $ 21,125
Gross profit 7,746 5,895 15,644 13,470
Operating income 849 822 4,477 3,032
Operating margin 6.3% 7.3% 18.5% 14.4%
Net income $ 480 $ 385 $ 3,147 $ 1,855
Net sales as a percent of annual net sales 19.2% 16.1% 34.6% 30.1%
</TABLE>
The Company has experienced quarterly fluctuations in sales volume and
operating results when compared to previous years due to a number of factors,
including the timing of trade promotions, advertising and consumer promotional
expenditures. The Company, as is common in the tea industry, offers trade
promotions for limited time periods on specific items in order to provide
incentives for the purchase and promotion of products. The impact on case
sales from period to period due to the timing and extent of such trade
promotions can be significant.
Liquidity and Capital Resources
The operations of the Company historically have been funded with a
combination of internally generated funds and external borrowings. Purchases
of inventory, marketing expenditures and support of accounts receivable have
historically been, and are expected to remain, the Company's principal
recurring uses of funds for the foreseeable future. The Company's other
principal uses of funds in the future will be the development of new or
existing products, including the Company's iced teas and nutraceutical
products, and the possible acquisition of brands, product lines or other
assets. The Company expects its primary sources of financing for its future
business activities will be funds from operations plus borrowings under the
credit facility. The Company currently believes that funds from operations and
funds expected to be available under the credit facility are likely to be
sufficient to meet operating and capital requirements unless a significant
acquisition is made.
13
<PAGE>
During 1996, cash provided by operating activities of the Company was $5.1
million. The Company's investing activities used cash of $1.8 million for
1996, primarily for capital expenditures. Financing activities of the Company
used cash of $3.4 million for 1996, principally for the repayment of long-term
debt.
The Company's existing credit facility includes a revolving working capital
facility of up to $8,000,000 subject to a borrowing base (the "Revolving
Loan"), a reducing revolving loan of up to $15,000,000 (the "Reducing Loan")
and a standby letter of credit commitment in an amount of $7,042,000 (the
"Letter of Credit Facility") to support outstanding Economic Development
Revenue Bonds issued to finance the Company's manufacturing facility.
Borrowings under the credit facility bear interest at rates ranging from LIBOR
plus 1.00% to prime, subject to increases if the Company fails to achieve
certain future operating results. The Letter of Credit Facility includes
annual financing fees of 1.75%, and loans resulting from a drawing under the
Letter of Credit Facility bear interest at the prime rate plus 1.00%. The
Revolving Loan is due on July 20, 1998, the Reducing Loan is subject to semi-
annual commitment reductions through July 19, 2000, and the Letter of Credit
Facility expires on July 19, 2000. The credit facility imposes certain ratio
maintenance requirements on the Company, including minimum EBITDA levels,
interest coverage, current ratio, net worth and fixed charge coverage, and
certain restrictive covenants including limitations on indebtedness, liens,
capital expenditures, sales of assets, mergers, investments and dividends.
Future borrowings under the credit facility will provide for working capital
and may be used for acquisition financing.
The Company made capital expenditures, including the development of
intangible assets, of approximately $1.9 million during the year ended
September 30, 1996, principally for plant and equipment, as well as for the
design and development of new packaging artwork. The Company anticipates
making capital expenditures of approximately $1.75 to $2.0 million in 1997.
Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS 121 requires the Company to evaluate long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value
of an asset may not be recoverable. The Company has adopted SFAS 121 and has
recorded no such impairments in 1996.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation," which will be adopted by the Company beginning October 1,
1996. SFAS 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages, but does not require, compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share in 1997.
The statements contained in this Annual Report on Form 10-K which are not
historical facts, including, but not limited to, certain statements found
under the captions "Business," "Results of Operations" and "Liquidity and
Capital Resources" above, are forward-looking statements that involve a number
of risks and uncertainties. The actual results of the future events described
in such forward-
14
<PAGE>
looking statements could differ materially from those stated in such forward-
looking statements. Among the factors that could cause actual results to
differ materially are the risks and uncertainties discussed in this Annual
Report on Form 10-K, including, without limitation, the portions of such
reports under the captions referenced above, and the uncertainties set forth
from time to time in the Company's filings with the Securities and Exchange
Commission, and other public statements. Such risks and uncertainties include,
without limitation, seasonality, interest in the Company's products, general
economic conditions, consumer trends, costs and availability of raw materials,
competition and the effect of governmental regulation.
15
<PAGE>
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Celestial Seasonings, Inc.:
We have audited the accompanying consolidated balance sheets of Celestial
Seasonings, Inc. and subsidiaries (the "Company," Note 2) as of September 30,
1996 and 1995 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
September 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Celestial Seasonings, Inc. and
its subsidiaries at September 30, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Denver, Colorado
November 4, 1996
16
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------
1996 1995 1994
-------- ---------- -----------
<S> <C> <C> <C>
Net sales $ 72,998 $ 70,104 $ 65,041
Cost of goods sold 28,545 27,349 24,322
-------- ---------- -----------
Gross profit 44,453 42,755 40,719
Operating expenses:
Selling and marketing 30,071 27,323 26,306
General and administrative 3,899 4,429 3,861
Amortization of intangibles 1,493 1,823 2,046
-------- ---------- -----------
Total operating expenses 35,463 33,575 32,213
Operating income 8,990 9,180 8,506
Interest expense 874 1,264 1,345
-------- ---------- -----------
Income before income taxes 8,116 7,916 7,161
Income taxes 3,093 2,049 698
-------- ---------- -----------
Net income $ 5,023 $ 5,867 $ 6,463
======== ========== ===========
Net income per common share $ 1.22 $ 1.44 $ 1.57
======== ========== ===========
Weighted average common shares 4,115 4,086 4,106
======== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 204 $ 375
Accounts receivable, net of allowance (1996 - $148, 1995 - $71) 8,133 5,298
Inventory 6,808 7,721
Deferred income taxes 7 835
Prepaid income taxes 470 -
Prepaid expenses 889 660
----------- -----------
Total current assets 16,511 14,889
Property, plant and equipment, net 16,871 16,645
Intangible assets, net 13,514 14,139
Goodwill, net 6,430 5,791
Deferred income taxes 287 229
Other assets 1,290 1,634
----------- -----------
Total assets $ 54,903 $ 53,327
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,754 $ 3,516
Accrued liabilities and wages 4,462 4,161
Accrued income taxes - 564
Accrued interest payable 52 54
Current portion of long-term debt 361 355
----------- -----------
Total current liabilities 8,629 8,650
Long-term debt 9,057 12,768
Commitments
Stockholders' equity:
Preferred stock, $.01 par value - authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, $.01 par value - authorized 15,000,000 shares;
1996-issued 4,054,472 shares, outstanding 4,049,472 shares;
1995-issued 4,041,378 shares, outstanding 4,036,378 shares 41 40
Capital surplus 33,290 33,006
Retained earnings (Accumulated deficit) 3,981 (1,042)
Treasury stock, 5,000 shares of common stock at cost (95) (95)
----------- -----------
Total stockholders' equity 37,217 31,909
----------- -----------
Total liabilities and stockholders' equity $ 54.903 $ 53.327
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,023 $ 5,867 $ 6,463
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,068 885 728
Amortization of intangibles 1,493 1,823 2,046
Amortization of financing fees 223 224 221
Deferred income taxes 770 (697) (367)
Gain on sale of assets - (201) -
Changes in operating assets and liabilities:
Accounts receivable (2,835) 804 (1,190)
Inventory 913 (1,832) 752
Prepaid and accrued income taxes (1,034) 295 268
Prepaid expenses (229) 45 (254)
Accounts payable 238 (606) (490)
Accrued liabilities and wages (570) 281 501
Accrued interest payable (2) (36) (32)
---------------- ---------------- ----------------
Net cash provided by operating activities 5,058 6,852 8,646
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 202 -
Capital expenditures (1,294) (454) (2,619)
Increase in intangible assets (636) (616) (588)
Acquisition of subsidiary - (1,171) -
Investment in affiliates - (130) (160)
Decrease (Increase) in other assets 121 (56) 39
---------------- ---------------- ----------------
Net cash used in investing activities (1,809) (2,225) (3,328)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 285 239 37
Acquisition of treasury stock - (95) -
Increase in long-term debt 12,265 8,900 6,946
Reduction in long-term debt (15,970) (13,562) (11,971)
Additions to financing fees - - (119)
---------------- ---------------- ----------------
Net cash used in financing activities (3,420) (4,518) (5,107)
---------------- ---------------- ----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (171) 109 211
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 375 266 55
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 204 $ 375 $ 266
================ ================ ================
CASH PAID FOR INTEREST $ 654 $ 1,080 $ 1,156
CASH PAID FOR INCOME TAXES $ 3,357 $ 2,450 $ 798
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Retained
Earnings
Common Stock Capital (Accumulated Treasury Stock Total
----------------------------- ------------------------
Shares Amount Surplus Deficit) Shares Amount Equity
------------- ------------- ----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1993 4,018,597 $ 40 $ 32,730 $ (13,372) - $ - $ 19,398
Issuance of common stock 2,193 - 37 37
Net income 6,463 6,463
------------- ------------- ----------- ----------- ----------- ---------- ---------
BALANCE, SEPTEMBER 30, 1994 4,020,790 40 32,767 (6,909) - - 25,898
Issuance of common stock 20,588 - 239 239
Acquisition of treasury stock (5,000) (95) (95)
Net income 5,867 5,867
------------- ------------- ----------- ----------- ----------- ---------- ---------
BALANCE, SEPTEMBER 30, 1995 4,041,378 40 33,006 (1,042) (5,000) (95) 31,909
Issuance of common stock 13,094 1 284 285
Net income 5,023 5,023
------------- ------------- ----------- ----------- ----------- ---------- ---------
BALANCE, SEPTEMBER 30, 1996 4,054,472 $ 41 $ 33,290 $ 3,981 (5,000) $ (95) $ 37,217
============= ============= =========== =========== =========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
CELESTIAL SEASONINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Celestial Seasonings, Inc. is the largest manufacturer and marketer of
herb teas in the United States, with an estimated 50% share of the herb tea
category. The Company developed and popularized the herb tea category in the
United States as a flavorful and non-caffeinated alternative to other hot
beverages. Currently the Company markets approximately 60 tea varieties under
the Celestial Seasonings(R) brand. Celestial Seasonings products are sold in
substantially all of the major supermarkets, grocery stores and natural foods
markets in the United States.
2. Significant Accounting Policies
Basis of presentation. The consolidated financial statements include the
accounts of Celestial Seasonings, Inc. and subsidiaries (the "Company"). All
material intercompany balances and transactions have been eliminated in
consolidation. The Company's year ends on the last Saturday of each September.
For presentation purposes, however, such year is presented as if it ended on
September 30. All references to years refer to the Company's fiscal years.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
through the reporting period. Actual results could differ from these estimates.
Cash and cash equivalents. Cash and cash equivalents include cash on hand
and on deposit and investments in highly liquid, short-term financial
instruments purchased with a maturity of three months or less.
Inventory. Inventory is stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Earnings per share. Earnings per share is based on the weighted average
number of shares outstanding and, if dilutive, common stock equivalents of the
Company.
Export sales. Net sales include total export sales of $7,579,000,
$6,578,000 and $5,666,000 in 1996, 1995 and 1994, respectively.
Depreciation and amortization. Depreciation and amortization of property,
plant and equipment is provided on the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Building 32
Vehicles 3
Factory equipment 7
Office and other equipment 5
</TABLE>
21
<PAGE>
Maintenance, repairs and renewals that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred.
Amortization of intangible assets is provided on the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Goodwill 15 to 40
Trademarks and copyrights 40
Grocery shelf space 40
Manufacturing process and workforce 7
Artwork and plates 3
Other 3 to 8
</TABLE>
Accumulated amortization of goodwill was $1,227,000 and $995,000 respectively,
at September 30, 1996 and 1995.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company periodically evaluates the recoverability of the
net carrying value of property, plant and equipment, intangible assets, and
goodwill based upon current and anticipated net income and undiscounted cash
flows, and if necessary an impairment is recorded. The Company has recorded no
such impairments in 1996, 1995 or 1994.
Research and development costs. Research and development costs are charged to
expense when incurred. During the years ended September 30, 1996, 1995 and 1994,
amounts expensed for Company-sponsored research and development activities were
$955,000, $1,005,000 and $919,000, respectively.
Concentrations of credit risk. Areas which potentially subject the Company to
significant concentrations of credit risk consist primarily of accounts
receivable. Concentrations of credit risk associated with accounts receivable
are limited due to the Company's large number of customers and their dispersion
across many different geographic areas. As of September 30, 1996, the Company
had no significant concentrations of credit risk.
Fair value of financial instruments. Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the fair values of certain of the Company's assets and
liabilities. The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable at September 30, 1996 and 1995 approximate fair
value due to their short-term maturities. The carrying value of long-term debt
at September 30, 1996 and 1995 also approximates fair value as interest rates
are adjusted to current market rates on a monthly and quarterly basis.
Stock based compensation. In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," which will be adopted by the Company
beginning October 1, 1996. SFAS 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages, but
22
<PAGE>
does not require, compensation cost to be measured based on the fair value of
the equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB Opinion No. 25 to its stock based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings per share
in 1997.
3. Detail of Certain Balance Sheet Accounts
(in thousands)
September 30,
------------------------
1996 1995
--------- ---------
Inventory:
Raw materials & supplies $ 4,486 $ 4,850
Work in process 888 1,057
Finished goods 1,665 2,693
--------- ---------
7,039 8,600
Less inventory reserves 231 879
--------- ---------
Total $ 6,808 $ 7,721
========= =========
Property, plant & equipment:
Land $ 5,921 $ 5,911
Building 8,701 8,591
Machinery & equipment 11,368 10,184
Furniture & fixtures 283 293
--------- ---------
26,273 24,979
Less accumulated depreciation 9,402 8,334
--------- ---------
Total $ 16,871 $ 16,645
========= =========
Intangible assets:
Trademarks & copyrights $ 9,848 $ 9,848
Grocery shelf space 5,700 5,700
Manufacturing process & workforce 4,879 4,879
Artwork & plates 4,237 3,601
Other 1,570 1,570
--------- ---------
26,234 25,598
Less accumulated amortization 12,720 11,459
--------- ---------
Total $ 13,514 $ 14,139
========= =========
Other assets:
Financing fees $ 1,830 $ 1,830
Less accumulated amortization 844 621
--------- ---------
986 1,209
Other 304 425
--------- ---------
Total $ 1,290 $ 1,634
========= =========
23
<PAGE>
4. Long-term Debt
Long-term debt consists of the following (in thousands):
September 30,
----------------------
1996 1995
-------- --------
Term loans payable to banks $ 2,600 $ 5,950
Borrowings related to Economic Development
Revenue Bonds due in monthly installments
through November 1, 2009, interest payable
monthly at variable rates 6,650 6,950
Other 168 223
-------- --------
9,418 13,123
Less current portion 361 355
-------- --------
Total $ 9,057 $ 12,768
======== ========
The Company's existing bank credit facility (the "Facility") includes a
revolving working capital facility, a reducing revolving facility and a letter
of credit facility. The commitment under the revolving working capital facility
(no borrowings outstanding at September 30, 1996) is $8,000,000, subject to a
borrowing base which is based on the Company's accounts receivable and
inventory, and has a final maturity of July 20, 1998. The commitment under the
reducing revolving facility (borrowings of $2,600,000 at September 30, 1996) was
$15,000,000 at September 30, 1996, with semi-annual reductions of the commitment
until final maturity at July 19, 2000. At September 30, 1996, outstanding
borrowings under these facilities bore interest at rates ranging from LIBOR plus
1.00% to prime with an average weighted interest rate of 6.89%. The commitment
under the letter of credit facility is $7,042,000 and expires July 19, 2000,
with fees of 1.75% per annum of the total commitment. Borrowings under this
facility (none at September 30, 1996) bear interest at the prime rate plus
1.00%. As required by the Facility, in 1994 the Company entered into, at a cost
of $87,000, an interest rate cap agreement set at a 90 day LIBOR strike price of
5.00%, on a notional amount of $10,000,000, in order to hedge its exposure on
variable rate debt. The interest rate cap agreement expired October 13, 1996.
The Facility imposes certain ratio maintenance requirements on the
Company, including minimum EBITDA levels, interest coverage, current ratio, net
worth and fixed charge coverage, and certain restrictive covenants including
limitations on indebtedness, liens, capital expenditures, sales of assets,
mergers, investments and dividends. Borrowings under the Facility are secured by
substantially all of the assets of the Company.
Borrowings related to Economic Development Revenue Bonds (the "Bonds")
bear interest at a variable rate (3.60% at September 30, 1996) and are secured
by a letter of credit issued under the Facility. The Bonds mature December 1,
2009. The Bonds can be tendered monthly to the Bond trustee at face value plus
accrued interest, with payment for tendered Bonds made from drawdowns under the
letter of credit. Drawdowns under the letter of credit bear interest at prime
plus 1.00%, and are repaid through resale of the Bonds. Any outstanding
drawdowns must be repaid on July 19, 2000. There were no borrowings under the
letter of credit at September 30, 1996 and 1995.
The aggregate annual maturities of long-term debt during the five years
subsequent to September 30, 1996 are: 1997 - $361,000; 1998 - $383,000; 1999-
$323,000; 2000 - $2,975,000; and 2001 - $400,000.
24
<PAGE>
5. Commitments
The Company leases various office and manufacturing equipment. Total rental
expense for the equipment for the years ended September 30, 1996, 1995 and 1994
was $367,000, $457,000 and $312,000, respectively. At September 30, 1996,
minimum rental commitments by year under noncancelable operating leases are:
1997 - $343,000; 1998 - $112,000; 1999 - $8,000; and 2000 - $4,000.
6. Legal Proceedings
On May 5, 1995, a purported stockholder of the Company filed a lawsuit,
Schwartz v. Celestial Seasonings, Inc. et al., in the United States District
- ---------------------------------------------
Court for the District of Colorado (Civil Action Number: 95-K-1045), in
connection with disclosures by the Company concerning the Company's license
agreement with Perrier Group of America, Inc. which was terminated on January 1,
1995. In addition to the Company, the complaint names as defendants certain of
the Company's present and former directors and officers, PaineWebber, Inc.,
Shearson/Lehman Brothers, Inc., and Vestar/Celestial Investment Limited
Partnership. The complaint, which was pled as a class action on behalf of
persons who acquired the Company's common stock from July 12, 1993 through May
18, 1994, sought money damages from the Company and the other defendants for the
class in the amount of their loss on their investment in the Company's common
stock, punitive damages, costs and expenses of the action, and such other relief
as the court may order.
On November 6, 1995, the federal district court granted a motion by the
Company and the other defendants to dismiss the case. The court's order became
final on December 11, 1995, after the plaintiff failed to amend the complaint
within the time permitted by the district court. The plaintiff has appealed the
district court's decision to the United States Court of Appeals for the Tenth
Circuit. Due to the uncertainties inherent in the litigation process, the
Company is unable to predict the outcome of this matter.
The Company is also a party to ordinary routine litigation incidental to its
business. The Company does not expect any of such incidental litigation to have
a material adverse effect on the Company's results of operations or financial
condition.
7. Stockholders' Equity
Preferred stock. In July 1993, the Company authorized the issuance of
1,000,000 shares of $0.01 par value Preferred Stock and designated 10,000 shares
as a Series A Junior Participating Preferred Stock in connection with the
adoption of a rights agreement. No shares were outstanding at September 30,
1996.
Stock options. During 1991, the Company approved the adoption of an incentive
and non-qualified stock option plan that provided for the granting of options to
purchase up to 46,112 shares of the Company's common stock to employees. The
options generally vest over a four year period and expire five years from the
grant date. No further grants will be made under the plan.
In 1991, the Company granted options to Mo Siegel to purchase 95,630 shares of
the Company's common stock in connection with capital contributions made by Mr.
Siegel and certain other agreements. Such options were immediately vested at the
grant date, are exercisable half at $8.26 per share and half at $11.45 per
share, and expire in 2031.
25
<PAGE>
During 1993, the Company approved the adoption of an incentive and non-
qualified stock option plan that provides for the granting of options to
purchase up to 131,000 shares of the Company's common stock. Options granted at
the time of the Company's initial public offering in 1993 vest over one year and
five year periods. Options granted subsequent to the Company's initial public
offering generally vest over a five year period. Options granted under this plan
expire ten years from the grant date. During 1995, the Company increased the
number of options that may be granted under the plan to 225,000 shares.
In 1993, the Company granted options to purchase 10,000 shares of the
Company's common stock to a director of the Company. The options vest over a
three year period and expire ten years from the grant date.
In 1995, the Company approved the adoption of a non-qualified stock option
plan. The plan provides for up to 75,000 shares of the Company's common stock
for issuance upon exercise of options granted to new non-employee directors
and in lieu of meeting fees paid to non-employee directors. The options vest
over a one year period and expire ten years from the grant date.
Stock option activity was as follows:
<TABLE>
<CAPTION>
Options Exercise Price
-------- ---------------
<S> <C> <C>
Outstanding, September 30, 1993 264,573 $ 7.63 - $20.00
Granted 27,850 $14.25 - $32.00
Exercised (524) $ 7.63
Canceled (18,422) $ 7.63 - $32.00
--------
Outstanding, September 30, 1994 273,477 $ 7.63 - $32.00
Granted 69,000 $14.69 - $19.50
Exercised (16,634) $ 7.63 - $10.69
Canceled (45,332) $10.21 - $32.00
--------
Outstanding, September 30, 1995 280,511 $ 7.63 - $30.00
Granted 45,154 $17.25 - $24.00
Exercised (7,360) $14.75 - $20.00
Canceled (62,114) $10.69 - $30.00
--------
Outstanding, September 30, 1996 256,191 $ 7.63 - $24.00
========
</TABLE>
The weighted average exercise price of outstanding options at September 30,
1996 was $15.03. Stock options vest as follows:
<TABLE>
<CAPTION>
Year Shares
---- ------
<S> <C>
Currently exercisable 168,488
1997 31,444
1998 24,074
1999 16,649
2000 11,806
2001 3,730
---------
Total 256,191
=========
</TABLE>
26
<PAGE>
8. Income Taxes
The components of income taxes are as follows (in thousands):
1996 1995 1994
------- ------- -------
Federal:
Current $ 2,101 $ 2,180 $ 1,013
Deferred 663 (490) (367)
------- ------- -------
2,764 1,690 646
------- ------- -------
State:
Current 222 566 52
Deferred 107 (207) -
------- ------- -------
329 359 52
------- ------- -------
Total $ 3,093 $ 2,049 $ 698
======= ======= =======
The Company's income tax expense in 1996, 1995 and 1994 differs from the
federal statutory provision as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income tax at statutory rates $ 2,759 $ 2,691 $ 2,435
Utilization of operating loss carryforwards - (650) (1,700)
Realization of deferred tax assets for which
valuation allowances had been provided - (429) (344)
Increase in deferred tax assets for which
valuation allowances are provided 59 95 100
State income taxes, net of federal benefit 217 237 34
Other 58 105 173
-------- -------- --------
Total $ 3,093 $ 2,049 $ 698
======== ======= ========
</TABLE>
27
<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Components of
the Company's net deferred tax assets at September 30 are as follows (in
thousands):
1996 1995
-------- --------
Current deferred tax assets:
Accruals $ 245 $ 367
Reserves (60) 480
Capitalized costs 93 101
Prepayments (271) (113)
-------- --------
Current deferred tax assets, net $ 7 $ 835
======== ========
Noncurrent deferred tax assets:
Amortization $ 2,291 $ 1,950
Depreciation (123) 9
Valuation allowance (1,881) (1,730)
-------- --------
Noncurrent deferred tax assets, net $ 287 $ 229
======== ========
At September 30, 1996 the potential future benefits from noncurrent
deferred tax assets relating to intangible assets, which are not amortizable for
tax purposes, are fully reserved by means of a valuation allowance, due to the
uncertainty of their future realization. The net change in the valuation
allowance in 1996 was $151,000.
9. Employee Benefit Plans
The Company has a contributory thrift plan covering all employees. Each
year, based on the achievement of certain targeted operating results, the
Company can contribute to the plan an amount equal to 1% to 2.5% of thriftable
wages. Additionally, the Company matches 50% of participant contributions up to
limits provided in the plan. The Company's contributions are funded currently
and were $323,000, $312,000 and $263,000 for 1996, 1995 and 1994, respectively.
During 1989, the Company formed an employee stock ownership plan covering
all employees. The Company's contributions for 1996, 1995 and 1994 were $75,000
per year. The plan held 22,310 shares of the Company's common stock at September
30, 1996.
10. Related Party Transactions
Pursuant to a management agreement, the Company paid management fees and
reimbursable expenses to a company affiliated with two directors and a
stockholder of the Company totaling $89,000 during 1994. The management
agreement was terminated in January 1994. During 1994, the Company incurred
$159,000 of costs associated with the registered public offering of 500,000
shares of common stock on behalf of certain stockholders, including 425,000
shares on behalf of the affiliate referenced above.
28
<PAGE>
The Company earned royalty income totaling $417,000 and $550,000 during 1995
and 1994, respectively, from a company whose former chairman of the board of
directors serves as a director of the Company. During 1995, the Company paid
royalty expense totaling $25,000 to that company associated with the termination
of the agreement.
The Company had sales to an affiliate of $128,000, $357,000 and $98,000 during
1996, 1995 and 1994, respectively. As of September 30, 1996 and 1995 amounts
due from the affiliate totaled $48,000 and $18,000, respectively.
11. Business Combination
On June 30, 1995, the Company acquired the net assets of Botalia
Pharmaceutical, Inc., a developer and marketer of herbal supplements. The
transaction was accounted for as a purchase business combination and the results
of operations for the period July 1, 1995 through September 30, 1995 were
included in the 1995 consolidated income statement of the Company. The total
cash consideration for the acquisition, including acquisition costs of
approximately $300,000, was approximately $1.2 million. As a result of this
transaction, goodwill of approximately $1.1 million was recorded and is being
amortized over 15 years on a straight-line basis. Pro forma information for this
acquisition is not material and therefore is not presented.
During 1996, the Company completed its purchase price allocation and recorded
an increase to goodwill of approximately $871,000, primarily for the accrual of
additional preacquisition liabilities. This amount is being amortized on a
straight-line basis over the remaining goodwill life of 14 years.
12. Quarterly Financial Data (Unaudited):
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1996 Quarters Ended
--------------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Case sales 832 647 1,437 1,422
Net sales $ 14,587 $ 10,829 $ 23,950 $ 23,632
Gross profit 8,536 5,840 15,195 14,882
Operating income (loss) 906 (139) 4,929 3,294
Net income (loss) 466 (136) 2,841 1,852
Net income (loss) per share $ 0.11 $ (0.03) $ 0.69 $ 0.45
Net sales as a percent of annual net sales 20.0% 14.8% 32.8% 32.4%
<CAPTION>
1995 Quarters Ended
--------------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Case sales 831 764 1,456 1,223
Net sales $ 13,482 $ 11,265 $ 24,232 $ 21,125
Gross profit 7,746 5,895 15,644 13,470
Operating income 849 822 4,477 3,032
Net income 480 385 3,147 1,855
Net income per share $ 0.12 $ 0.09 $ 0.77 $ 0.45
Net sales as a percent of annual net sales 19.2% 16.1% 34.6% 30.1%
</TABLE>
29
<PAGE>
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
30
<PAGE>
PART III
--------
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections labeled "Election of Directors," "Compliance with Section 16" and
"Executive Officers" appearing in the Company's Proxy Statement in connection
with the 1997 Annual Meeting of Stockholders are incorporated herein by
reference.
ITEM 11. - EXECUTIVE COMPENSATION
The sections labeled "Compensation of Directors and Executive Officers,"
"Executive Compensation," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and Year-end Option Values," "Employment
Agreements," "Compensation Committee Report" and "Performance Graph" appearing
in the Company's Proxy Statement in connection with the 1997 Annual Meeting of
Stockholders are incorporated herein by reference.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section labeled "Principal Stockholders" appearing in the Company's Proxy
Statement in connection with the 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
31
<PAGE>
PART IV
-------
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 16
Consolidated Income Statements for the years ended
September 30, 1996, 1995 and 1994 17
Consolidated Balance Sheets at September 30, 1996 and 1995 18
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994 19
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1996, 1995 and 1994 20
Notes to Consolidated Financial Statements 21-29
Quarterly Financial Data (unaudited) 29
2. Index to Financial Statement Schedule
The following schedule is filed as part of this Form 10-K:
II - Valuation and Qualifying Accounts for the years ended
September 30, 1996, 1995 and 1994 37
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
32
<PAGE>
3. Exhibits
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
*3.1 - Amended and Restated Certificate of Incorporation of Registrant.
*3.2 - Bylaws of Registrant.
*4.1 - Common Stock certificate.
*4.2 - Rights Agreement dated as of July 19, 1993 between Registrant and Harris Trust
and Savings Bank, as Rights agent.
*10.1 - Incentive and Non-Qualified Stock Option Plan of Registrant as Successor to
Celestial Holdings, Inc. adopted February 26, 1991.
*******10.2 - 1993 Long-Term Incentive Plan of Registrant adopted June 7, 1993, as amended.
******10.3 - 1994 Non-Employee Director Compensation Plan adopted August 4, 1994.
**10.4 - Credit Agreement dated as of July 19, 1993, among Registrant and Fleet National
Bank as a lender and as agent.
10.5 - Amendments 1, 2 and 3 to the Credit Agreement dated as of July 19, 1993, among
Registrant and Fleet National Bank as a lender and agent.
*10.6 - Loan Agreement dated as of December 1, 1989 between Registrant and Colorado
Housing and Finance Authority.
*10.7 - Common Stock Subscription Agreement dated as of July 11, 1991 among
Registrant, Mo Siegel and Vestar/Celestial Investment Limited Partnership, as
amended July 15, 1991 and August 22, 1991.
***10.8 - Employment Agreement dated May 22, 1992 between Registrant and
John D. Hale.
****10.9 - Employment Agreement dated November 16, 1993 between Registrant and
Abbe G. Kuhn.
****10.10 - Employment Agreement dated February 15, 1994 between Registrant and
Marie A. Gambon.
*****10.11 - Employment Agreement dated December 7, 1994 between Registrant and
Ramona Cappello.
23.1 - Report of Deloitte & Touche LLP on consolidated financial statement schedule.
23.2 - Consent of Deloitte & Touche LLP.
27.1 - Financial Data Schedule.
</TABLE>
33
<PAGE>
(b) Reports on Form 8-K
There were no reports on Form 8-K for the quarter ending September 30, 1996.
__________
*Incorporated by reference to the Registrant's Registration Statement on Form
S-1 No. 33-64012, as amended, filed with the Securities and Exchange
Commission on June 7, 1993.
**Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.
***Incorporated by reference to the Registrant's Registration Statement on
Form S-1 No. 33-72900, as amended, filed with the Securities and Exchange
Commission on December 15, 1993.
****Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1994.
*****Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995.
******Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1995.
*******Incorporated by reference to the Registrant's Proxy Statement in
connection with the 1995 Annual Meeting of Stockholders, filed with the
Securities and Exchange Commission on January 4, 1995.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, as amended, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Boulder, State of Colorado, as of December 13, 1996.
CELESTIAL SEASONINGS, INC.
By: /S/ DARRELL F. ASKEY
----------------------
Darrell F. Askey
Vice President - Finance, Secretary
and Treasurer
35
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this
Annual Report on Form 10-K for the year ended September 30, 1996 has been
signed by the following persons in the capacities indicated on the 13th day
of December, 1996.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ MO SIEGEL Chairman, President and Chief Executive Officer December 13, 1996
- ------------------------------
Mo Siegel
/S/ RONALD V. DAVIS Director December 13, 1996
- ------------------------------
Ronald V. Davis
/S/ MARINA HAHN Director December 13, 1996
- ------------------------------
Marina Hahn
/S/ JOHN D. HOWARD Director December 13, 1996
- ------------------------------
John D. Howard
/S/ JAMES P. KELLEY Director December 13, 1996
- ------------------------------
James P. Kelley
/S/ LEONARD LIEBERMAN Director December 13, 1996
- ------------------------------
Leonard Lieberman
/S/ DARRELL F. ASKEY Vice President - Finance, Secretary and Treasurer December 13, 1996
- ------------------------------ (Principal Financial Officer)
Darrell F. Askey
/S/ SANFORD D. GOLDBERG Controller (Principal Accounting Officer) December 13, 1996
- ------------------------------
Sanford D. Goldberg
</TABLE>
36
<PAGE>
SCHEDULE II
CELESTIAL SEASONINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance
Beginning Charged to Write- at End
Classification of Year Expenses offs of Year
- -------------- ------------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
For the year ended September 30, 1994:
Allowance for doubtful accounts................ $116 $ 29 $ (31) $114
Inventory reserves............................. 132 355 (270) 217
For the year ended September 30, 1995:
Allowance for doubtful accounts................ 114 120 (163) 71
Inventory reserves............................. 217 845 (183) 879
For the year ended September 30, 1996:
Allowance for doubtful accounts................ 71 77 - 148
Inventory reserves............................. 879 68 (716) 231
</TABLE>
37
<PAGE>
Exhibit 10.5
FIRST AMENDMENT
TO
CREDIT AGREEMENT
THIS FIRST AMENDMENT ("Amendment #1") is entered into as of May 4, 1994, by
and among CELESTIAL SEASONINGS, INC., a Delaware corporation having its
principal place of business at 4600 Sleepytime Drive, Boulder, Colorado 80301
("Borrower"), FLEET NATIONAL BANK ("FNB") and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION ("BANTSA") (FNB and BANTSA, individually, a "Lender" and
collectively, "Lenders") and FNB as agent for the Lenders (in such capacity,
"Agent").
BACKGROUND
Borrower, Agent and Lenders are parties to a Credit Agreement dated as of
July 19, 1993 (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement") pursuant to which each Lender, severally and not
jointly, provided Borrower with certain financial accommodations.
Borrower has requested that Lenders increase the permitted Capital
Expenditures for the Fiscal Years 1994 and 1995 and each Lender is willing to do
so on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrower by Lenders and
Agent, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Credit Agreement.
2. Amendments to Credit Agreement. Subject to satisfaction of the condition
precedent set forth in Section 3 below, the Credit Agreement is hereby amended
as follows:
(a) Section 8.7 of the Credit Agreement is hereby amended by deleting the
permitted amounts set forth therein for Capital Expenditures for the Fiscal
Years of 1994 and 1995 and by inserting the following in lieu thereof:
The Fiscal Year of 1994.............................. $3,500,000
The Fiscal Year of 1995.............................. $3,000,000
39
<PAGE>
(b) Section 11.1(a) of the Credit Agreement is hereby amended by deleting
the address set forth therein for "Agent and/or Lenders" and by inserting the
following in lieu thereof:
If to Agent: c/o Fleet Credit Corporation
75 State Street - 4th Floor
Boston, Massachusetts 02109-2197
Attention: Kevin Cronin
Telephone: (617) 346-1750
Telecopier: (617) 346-1770
with a copy to: Hahn & Hessen
350 Fifth Avenue
New York, New York 10118
Attention: Daniel J. Krauss, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
If to Lenders: Fleet Credit Corporation
75 State Street - 4th Floor
Boston, Massachusetts 02109-2197
Attention: Kevin Cronin
Telephone: (617) 346-1750
Telecopier: (617) 346-1770
and Bank of America National Trust and
Savings Association
525 South Flower Street
Los Angeles, California 90071
Attention: Kathleen McClure-Wight
Telephone: (213) 228-9953
Telecopier: (213) 228-2051
with a copy to: Hahn & Hessen
350 Fifth Avenue
New York, New York 10118
Attention: Daniel J. Krauss, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
3. Condition of Effectiveness. This Amendment #1 shall become effective
when Agent shall have received five (5) copies hereof each duly executed by
Borrower and Lenders.
4. Representations and Warranties. Borrower hereby represents and warrants
as follows:
(a) This Amendment #1, and the Credit Agreement
40
<PAGE>
as amended hereby, constitute legal, valid and binding obligations of
Borrower and are enforceable against Borrower in accordance with their
respective terms.
(b) Upon the effectiveness of this Amendment #1, Borrower hereby
reaffirms all covenants, representations and warranties made in the Credit
Agreement to the extent the same are not amended hereby and agrees that all
such covenants, representations and warranties shall be deemed to have been
remade as of the effective date of this Amendment #1.
(c) No Event of Default or Incipient Default has occurred and is
continuing or would exist after giving effect to this Amendment #1.
(d) Borrower has no defense, counterclaim or offset with respect to the
Credit Agreement.
5. Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Credit Agreement as amended
hereby.
(b) Except as specifically amended herein, the Credit Agreement, and all
other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of Lenders, nor constitute a
waiver of any provision of the Credit Agreement, or any other documents,
instruments or agreements executed and/or delivered under or in connection
therewith.
6. Governing Law. This Amendment #1 shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
7. Headings. Section headings in this Amendment #1 are included herein for
convenience of reference only and shall not constitute a part of this Amendment
#1 for any other purpose.
8. Counterparts. This Amendment may be executed by the parties hereto in
one or more counterparts, each of which when taken together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment No. 1 has been duly
41
<PAGE>
executed as of the day and year first written above.
CELESTIAL SEASONINGS, INC.
By: /s/ Bruce Valentine
-------------------
Name: Bruce Valentine
Title: Assistant Treasurer
FLEET NATIONAL BANK,
as Agent and as Lender
By: /s/ Kevin Cronin
----------------
Name: Kevin Cronin
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Lender
By: /s/ Kathleen McClure-Wight
--------------------------
Name: Kathleen McClure-Wight
Title: Vice President
42
<PAGE>
SECOND AMENDMENT
TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT ("Amendment #2") is entered into as of February 25,
1995, by and among CELESTIAL SEASONINGS, INC., a Delaware corporation having its
principal place of business at 4600 Sleepytime Drive, Boulder, Colorado 80301
("Borrower"), FLEET BANK OF MASSACHUSETTS, N.A. (assignee of Fleet National Bank
by Assignment and Acceptance Agreement effective as of September 27,1994,
"FBMA") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANTSA")
(FBMA and BANTSA, individually, a "Lender" and collectively, "Lenders") and FBMA
as agent for the Lenders (in such capacity, "Agent").
BACKGROUND
Borrower, Agent and Lenders are parties to a Credit Agreement dated as of
July 19, 1993 (as amended, supplemented or otherwise modified from time to time,
including by First Amendment to Credit Agreement dated as of May 4, 1994, the
"Credit Agreement") pursuant to which each Lender, severally and not jointly,
provided Borrower with certain financial accommodations.
Borrower has requested that Lenders amend the Credit Agreement to permit
Borrower to utilize cash-on-hand or the proceeds of Revolving Credit Loans to
repurchase shares of Borrower's common capital stock during the period February
24, 1995 through February 23, 1996, up to an aggregate purchase price to
Borrower of $7,500,000 and each Lender is willing to do so on the terms and
conditions hereafter set forth.
Borrower has also requested that Lenders amend the Credit Agreement to
delete the requirement that Borrower prepay the Reducing Revolving Loans in
amounts equal to 50% of Excess Cash Flow and each Lender is willing to do so on
the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrower by Lenders and
Agent, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the
43
<PAGE>
Credit Agreement.
2. Amendments to Credit Agreement. Subject to satisfaction of the
condition precedent set forth in Section 3 below, the Credit Agreement is hereby
amended as follows:
(a) Section 1.2 of the Credit Agreement is hereby amended by deleting the
definition of the term "Prepayment Amount" and by inserting a new definition for
the term "1995 Stock Repurchase Program" as follows:
"1995 Stock Repurchase Program" shall mean the publicly announced
purchase by Borrower of shares of its own common capital stock in
public markets during the period February 24, 1995 through February 23,
1996, not in excess of an aggregate purchase price of Seven Million
Five Hundred Thousand Dollars ($7,500,000).
(b) Section 2.10(b) of the Credit Agreement is hereby deleted in its
entirety.
(c) Section 5.14 of the Credit Agreement is hereby amended by inserting the
words ", including, but not limited to, the 1995 Stock Repurchase Program"
immediately preceding the period appearing at the end thereof.
(d) Section 8.6 of the Credit Agreement is hereby amended by deleting the
words "Date and (M)" appearing in subsection (ii) thereof and by inserting the
following in lieu thereof:
Date, (M) shares of its own common capital stock pursuant to the 1995
Stock Repurchase Program and (N)
(e) Section 8.11 of the Credit Agreement is hereby amended by inserting the
following immediately preceding the colon appearing therein:
minus, with respect to each fiscal quarter commencing on or after
January 1, 1995, a sum equal to the aggregate amount then expended by
Borrower pursuant to the 1995 Stock Repurchase Program
3. Condition of Effectiveness. This Amendment #2 shall become effective
when Agent shall have received five (5) copies hereof each duly executed by
Borrower and Lenders.
4. Representations and Warranties. Borrower hereby represents and warrants
as follows:
(a) This Amendment #2, and the Credit Agreement
44
<PAGE>
as amended hereby, constitute legal, valid and binding obligations of
Borrower and are enforceable against Borrower in accordance with their
respective terms.
(b) Upon the effectiveness of this Amendment #2, Borrower hereby
reaffirms all covenants, representations and warranties made in the Credit
Agreement to the extent the same are not amended hereby and agrees that all
such covenants, representations and warranties shall be deemed to have been
remade as of the effective date of this Amendment #2.
(c) No Event of Default or Incipient Default has occurred and is
continuing or would exist after giving effect to this Amendment #2.
(d) Borrower has no defense, counterclaim or offset with respect to the
Credit Agreement.
5. Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Credit Agreement as amended
hereby.
(b) Except as specifically amended herein, the Credit Agreement, and all
other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of Lenders, nor constitute a
waiver of any provision of the Credit Agreement, or any other documents,
instruments or agreements executed and/or delivered under or in connection
therewith.
6. Governing Law. This Amendment #2 shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
7. Headings. Section headings in this Amendment #2 are included herein for
convenience of reference only and shall not constitute a part of this Amendment
#2 for any other purpose.
8. Counterparts; Telecopied Signatures. This Amendment #2 may be executed
by the parties hereto in one or more counterparts, each of which when taken
together shall be deemed to constitute one and the same instrument. Any
signature delivered by a party hereto by facsimile transmission shall be deemed
an original signature hereto.
45
<PAGE>
IN WITNESS WHEREOF, this Amendment #2 has been duly executed as of the day
and year first written above.
CELESTIAL SEASONINGS, INC.
By: /s/ Philip B. Livingston
------------------------
Name: Philip B. Livingston
Title: Vice President and CFO
FLEET BANK OF MASSACHUSETTS, N.A.,
as Agent and as Lender
By: /s/ Kimberly S. Kersten
-----------------------
Name: Kimberly S. Kersten
Title: Assistant Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Lender
By: /s/ Mark J. Glasky
------------------
Name: Mark J. Glasky
Title: Vice President
46
<PAGE>
THIRD AMENDMENT
TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT ("Amendment #3") is entered into as of April 19, 1995,
by and among CELESTIAL SEASONINGS, INC., a Delaware corporation having its
principal place of business at 4600 Sleepytime Drive, Boulder, Colorado 80301
("Borrower"), FLEET BANK OF MASSACHUSETTS, N.A. (assignee of Fleet National Bank
by Assignment and Acceptance Agreement effective as of September 27,1994,
"FBMA") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANTSA")
(FBMA and BANTSA, individually, a "Lender" and collectively, "Lenders") and FBMA
as agent for the Lenders (in such capacity, "Agent").
BACKGROUND
Borrower, Agent and Lenders are parties to a Credit Agreement dated as of
July 19, 1993 (as amended, supplemented or otherwise modified from time to time,
including by First Amendment to Credit Agreement dated as of May 4, 1994 and
Second Amendment to Credit Agreement dated as of February 25, 1995, the "Credit
Agreement") pursuant to which each Lender, severally and not jointly, provided
Borrower with certain financial accommodations.
Borrower has requested that Lenders amend the Credit Agreement to reduce
the interest rates and fees provided for therein based upon the performance by
Borrower of certain financial benchmarks and each Lender is willing to do so on
the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrower by Lenders and
Agent, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Credit Agreement.
2. Amendments to Credit Agreement. Subject to satisfaction of the
condition precedent set forth in Section 3 below, the Credit Agreement is hereby
amended as follows:
(a) Section 1.2 of the Credit Agreement is hereby
47
<PAGE>
amended by deleting the definition for the term "Interest Reduction Certificate"
and by inserting new definitions for the terms "Operating Cash Flow/Interest
Ratio" and "Ratio Certificate" as follows:
"Operating Cash Flow/Interest Ratio" for any period shall mean (x) (1)
EBITDA for the fiscal quarter period then most recently ended minus (2)
Capital Expenditures made during such period over (y) Cash Interest
Expense during such fiscal quarter period.
"Ratio Certificate" shall mean a certificate executed on behalf of
Borrower by its chief financial officer and delivered to Agent
certifying, as of the end of the fiscal quarter most recently ended
prior to receipt by Agent of such certificate, the Operating Cash
Flow/Interest Ratio for the most recently ended four (4) fiscal quarter
period and a reasonably detailed calculation thereof (based upon
Borrower's Consolidated income statement for such period to be delivered
pursuant to Section 7.5, as applicable, a copy of which shall be
attached to such certificate).
(b) Section 2.6 of the Credit Agreement is hereby amended and restated in
its entirety as follows:
SECTION 2.6. Interest on Loans. (a) Subject to the provisions of
Section 2.9 and Subsection 2.6(d), each Base Rate Loan shall bear interest
at a rate per annum equal to the Base Rate plus one-half of one percent
(.50%) (the "Base Rate Margin").
(b) Subject to the provisions of Section 2.9 and Subsection 2.6(d),
each Eurodollar Loan shall bear interest at a rate per annum equal to the
Adjusted LIBO Rate plus one and three-quarters percent (1.75%) (the "LIBO
Rate Margin").
(c) Each Bond Letter of Credit Loan shall bear interest at a rate per
annum equal to the Base Rate plus one percent (1.00%) ("BLC Margin").
(d) If as of the end of any four fiscal quarter period Borrower has
achieved an Operating Cash Flow/Interest Ratio of 5.0 or more for the
preceding rolling four fiscal quarter period as set forth in the Ratio
Certificate for such period (absent any error in such certificate) (and
provided that no Event of Default shall have occurred and be continuing),
the Base Rate Margin shall be reduced to one-quarter of one percent (.25%)
and the LIBO Rate Margin shall be
48
<PAGE>
reduced to one and one-half percent (1.50%). If as of the end of any four
fiscal quarter period Borrower has achieved an Operating Cash Flow/Interest
Ratio of 6.0 or more for the preceding rolling four fiscal quarter period
as set forth in the Ratio Certificate for such period (absent any error in
such certificate) (and provided that no Event of Default shall have
occurred and be continuing), the Base Rate Margin shall be reduced to zero
(0) and the LIBO Rate Margin shall be reduced to one and one-quarter
percent (1.25%). If as of the end of any four fiscal quarter period
Borrower has achieved an Operating Cash Flow/Interest Ratio of 7.0 or more
for the preceding rolling four fiscal quarter period as set forth in the
Ratio Certificate for such period (absent any error in such certificate)
(and provided that no Event of Default shall have occurred and be
continuing), the Base Rate Margin shall be zero (0) and the LIBO Rate
Margin shall be reduced to one percent (1.0%). Each of the foregoing
interest rate reductions shall be effective upon the date Agent receives
the appropriate Ratio Certificate. In the event, subsequent to receipt of
any Ratio Certificate, actual Operating Cash Flow/Interest Ratio for any
period is less than the applicable benchmark set forth above to achieve the
interest rate reduction then in effect, such reduction shall be reversed by
Agent effective upon receipt of such information and upon the occurrence
and during the continuation of a Material Default (as defined in Section
4.7) no such interest rate reduction shall be applicable.
(e) Interest on Base Rate Loans and Eurodollar Loans shall be payable
in arrears on each applicable Interest Payment Date. Interest on each Loan
shall be computed based on the actual number of days elapsed over a year of
360 days. Agent shall determine each interest rate applicable to the Loans
and shall promptly advise Borrower and the Lenders of the interest rate so
determined.
(c) Section 2.7(a) of the Credit Agreement is hereby amended by adding the
following immediately after the end of the first sentence thereof:
Notwithstanding the foregoing, if as of the end of any four fiscal quarter
period Borrower has achieved an Operating Cash Flow/Interest Ratio of 6.0
or more for the preceding rolling four fiscal quarter period as set forth
in the Ratio Certificate for such period (absent any error in such
certificate) (and provided that no Event of Default shall have occurred and
be continuing), the Revolving Loan Commitment Fee shall be reduced to
three-eighths of one percent (.375%) effective upon the date Agent receives
the appropriate
49
<PAGE>
Ratio Certificate. In the event, subsequent to receipt of any Ratio
Certificate, actual Operating Cash Flow/Interest Ratio for any period is
less than 6.0, such reduction shall be reversed by Agent effective upon
receipt of such information and upon the occurrence and during the
continuation of a Material Default (as defined in Section 4.7) no such
Revolving Loan Commitment Fee reduction shall be applicable.
3. Condition of Effectiveness. This Amendment #3 shall become effective
when Agent shall have received five (5) copies hereof each duly executed by
Borrower and Lenders. In the event Agent has not receive five copies hereof duly
executed by Borrower and Lenders on or prior to April 28, 1995 then this
Amendment #3 shall be of no further force and effect and be deemed null and void
ab initio.
4. Representations and Warranties. Borrower hereby represents and warrants
as follows:
(a) This Amendment #3, and the Credit Agreement as amended hereby,
constitute legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment #3, Borrower hereby
reaffirms all covenants, representations and warranties made in the Credit
Agreement to the extent the same are not amended hereby and agrees that all
such covenants, representations and warranties shall be deemed to have been
remade as of the effective date of this Amendment #3.
(c) No Event of Default or Incipient Default has occurred and is
continuing or would exist after giving effect to this Amendment #3.
(d) Borrower has no defense, counterclaim or offset with respect to
the Credit Agreement.
5. Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Credit Agreement as amended
hereby.
(b) Except as specifically amended herein, the Credit Agreement, and all
other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this
50
<PAGE>
Amendment shall not operate as a waiver of any right, power or remedy of
Lenders, nor constitute a waiver of any provision of the Credit Agreement, or
any other documents, instruments or agreements executed and/or delivered under
or in connection therewith.
6. Governing Law. This Amendment #3 shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
7. Headings. Section headings in this Amendment #3 are included herein for
convenience of reference only and shall not constitute a part of this Amendment
#3 for any other purpose.
8. Counterparts; Telecopied Signatures. This Amendment #3 may be executed
by the parties hereto in one or more counterparts, each of which when taken
together shall be deemed to constitute one and the same instrument. Any
signature delivered by a party hereto by facsimile transmission shall be deemed
an original signature hereto.
IN WITNESS WHEREOF, this Amendment #3 has been duly executed as of the day
and year first written above.
CELESTIAL SEASONINGS, INC.
By: /s/ Bruce Valentine
-------------------
Name: Bruce Valentine
Title: Assistant Treasurer
FLEET BANK OF MASSACHUSETTS, N.A.,
as Agent and as Lender
By: /s/ Kimberly S. Kersten
-----------------------
Name: Kimberly S. Kersten
Title: Assistant Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Lender
By: /s/ Mark J. Glasky
------------------
Name: Mark J. Glasky
Title: Vice President
51
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Celestial Seasonings, Inc.:
We have audited the consolidated financial statements of Celestial Seasonings,
Inc. and subsidiaries (the "Company") as of September 30, 1996 and 1995, and for
each of the three years in the period ended September 30, 1996, and have issued
our report thereon dated November 4, 1996; such consolidated financial
statements and report are included in your 1996 Annual Report to Stockholders
and are included herein. Our audits also included the consolidated financial
statement schedule of the Company, listed in Item 14. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
Denver, Colorado
November 4, 1996
52
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
69120, 33-67356, 33-67538 and 33-89340 of Celestial Seasonings, Inc. on Forms S-
8 of our reports dated November 4, 1996 appearing in this Annual Report on Form
10-K of Celestial Seasonings, Inc. for the year ended September 30, 1996.
Deloitte & Touche LLP
Denver, Colorado
December 13, 1996
53
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CELESTIAL
SEASONINGS, INC.'S FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 204
<SECURITIES> 0
<RECEIVABLES> 8,281
<ALLOWANCES> (148)
<INVENTORY> 6,808
<CURRENT-ASSETS> 16,511
<PP&E> 26,273
<DEPRECIATION> (9,402)
<TOTAL-ASSETS> 54,903
<CURRENT-LIABILITIES> 8,629
<BONDS> 9,057
0
0
<COMMON> 41
<OTHER-SE> 37,176
<TOTAL-LIABILITY-AND-EQUITY> 54,903
<SALES> 72,998
<TOTAL-REVENUES> 72,998
<CGS> 28,545
<TOTAL-COSTS> 28,545
<OTHER-EXPENSES> 35,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 874
<INCOME-PRETAX> 8,116
<INCOME-TAX> 3,093
<INCOME-CONTINUING> 5,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,023
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
